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US drops curbs on short selling
11.08.08
Restrictions on short selling of financial stocks in the US are to be lifted this week with evidence mounting that the measures failed.
Securities and Exchange Commission chairman Christopher Cox brought in the new rules on 15 July, saying it would stop unlawful manipulation of stock prices.
Similar measures were introduced by the Financial Services Authority in Britain amid fears investors were shorting banking stocks ahead of key rights issues.
The rules in the US cracked down on “naked short selling”, where investors sell stock they have not already borrowed. But the jury is out on whether the measures had any effect.
“While this curtailed naked short selling in the short run, I suspect people found clever and sophisticated ways to work around it through derivatives,” said John Welborn, an economist with investment firm The Haverford Group who studies short selling.
The SEC had said it wanted the rules made permanent.
